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BR Chapter 3 Consideration

Consideration is a fundamental element of a valid contract, defined as the price of a promise and can be past, present, or future. It must be real, lawful, and not something the promisor is already obligated to do, with exceptions allowing for agreements without consideration under certain conditions. The doctrine of privity of contract states that only parties to a contract can enforce it, with specific exceptions for beneficiaries and agents.

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27 views3 pages

BR Chapter 3 Consideration

Consideration is a fundamental element of a valid contract, defined as the price of a promise and can be past, present, or future. It must be real, lawful, and not something the promisor is already obligated to do, with exceptions allowing for agreements without consideration under certain conditions. The doctrine of privity of contract states that only parties to a contract can enforce it, with specific exceptions for beneficiaries and agents.

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Nayan Krishna Sureshbabu
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CONSIDERATION

The consideration is one of the essential elements of a valid contract. The term ‘consideration’
may be defined as the price of the promise. This term is used in the sense of quid pro quo (i.e.,
something in return).
Section 2 (d) of the ICA, 1872 defines consideration as "When at the desire of the promisor, the
promisee or any other person has done or abstained from doing something, or does or abstains
from doing something, or promises or to do or abstains from doing something, such act or
abstinence or promise is called a consideration for the promise".
ESSENTIALS OF CONSIDERATION
1. Consideration must move at the desire of the promisor: The consideration must move at the
desire of the promisor. The desire of the promisor may be express or implied from the conduct of
the parties.
2. Consideration may move from the promisee or any other person or Privity of Consideration: It
is not necessary that the consideration should proceed only from the promisee. Consideration
furnished by a third party will also be valid if it has been done at the desire of the promisor.
3. Consideration may be past, present or future: The words, has done or abstained from doing, does
or abstains from doing, or promises to do or to abstain from doing; indicate that the consideration
may be past, present or future.
a) Past consideration: When the present promise is based on the consideration already taken place
(i.e., before the date of the promise), it is termed as past consideration.
b) Present consideration: When the promisor receives consideration simultaneously with his
promise, it is termed as present consideration.
c) Future consideration: When the consideration for a promise is rendered in future it is termed as
future or executory consideration.
4. Consideration need not be adequate: The consideration need not be adequate to the promise but
it must be of some value in the eye of the law. According to explanation 2 to Section 25, an
agreement to which the consent of the promisor is freely given is not void merely because the
consideration is inadequate; but the inadequacy of the consideration may be taken into account by
the Court in determining the question whether the consent of the promisor was freely given.
5. Consideration must be real: Consideration must be real and be of some value in the eyes of law.
Consideration of the following type are not real:
(a) Physical impossibility: For instance as promising to put life into B's dead wife should B pay
him Rs. 500, is void for lack of physical possibility
(b) Legal impossibility: If consideration consists of something illegal, the agreement will be void.
(c) Uncertain consideration: An uncertain or vague consideration will make the agreement void.
6. Consideration must be lawful: Section 23 of the Act which says that “every agreement of which
the consideration is unlawful, is void”. It means that an agreement must be supported by lawful
consideration.
7. Consideration must not be something which the promisor is already bound to do
8. Forbearance to Sue is a Valid Consideration
DOCTRINE OF PRIVITY OF CONTRACT
The doctrine of privity of contract means the legal relationship subsisting or existing between the
parties to the contract. As per the doctrine of privity of contract, a person, who is not a party to the
contract, cannot sue for carrying out the promise made by the parties to the contract.
Exceptions to the privity of contract
1. Trusts Charge: When a trust is created, the beneficiary can enforce his rights given to him
under the trust, even though he was not a party to the contract between the settler and the
trustees.
2. In case of marriage settlement, partition or other family arrangements: Where a provision
is made in a partition or family arrangement for the benefit of any member of the family,
such a member may sue to enforce the agreement even though he is not a party to the
agreement.
3. Acknowledgement or Estoppel: Where the promisor acknowledges payment to a third
party, either by conduct or otherwise, the latter can sue.
4. Contracts entered through agency: A contract entered into by an agent acting within the
scope of his authority, can be enforced by the principal.
5. Covenants attached with the land: When any person purchases such land with the notice of
rights and obligations of the owner, then he shall be bound by those rights and obligations
although he was not a party to the agreement.
6. Law relating to negotiable instrument

“No Consideration, No Contract” Section 25, ICA 1872


According to Section 25, an agreement made without consideration is void.
“Ex Nudo Pacto Non Oritur Actio” which means an agreement without consideration is a void
agreement which is not enforceable by law.
Exceptions to the General Rule of “No Consideration, No Contract” Sec 25
The following circumstances under which the agreement is valid and enforceable even if it is made
without consideration:
1. Natural love and affection [Sec. 25 (1)]: This clause lays down four essential requirements for
the validity of an agreement made without consideration. They are
a) The agreement must be in writing;
b) It is registered under the law;
c) It is made on account of natural love and affection; and
d) It is between parties standing in a near relation to each other.
2. Compensation for past voluntary services [Sec. 25 (2)]: Such promise made without
consideration is valid:
a) If the act was done voluntarily;
b) For the promisor or something which the promisor was legally bound to do;
c) The promisor must be in existence at the time when the act was done; and
d) The promisor must agree now to compensate the promise.
3. Promise to pay time-barred debt [Sec. 25 (3)]: When a debtor makes a written and registered
promise, under signature of his own or that of his agent, to pay a time-barred debt, no fresh
consideration is needed. The following conditions must be satisfied for the application of this
exception: a) The promise to pay must be definite and express;
b) The promise must be in writing;
c) The promise must be signed by the promisor or his authorized agent;
d) The debt must be time-barred, i.e., the limitation period for the recovery of the debt, must be
expired.
4. Completed gift [Explanation 1 to Sec. 25]: The gifts actually made by a donor and accepted by
the done are valid even without consideration. Thus, a completed gift needs no consideration.
5. No consideration necessary for creation of agency [Sec. 185]: No consideration is necessary to
create an agency.
6. Consideration for guarantee [Sec 127]: Anything done or any promise made for the benefit of
the debtor may be sufficient consideration for the guarantor.
7. Charitable subscription: A promise to donate to a charitable organization is valid and
enforceable contract although no consideration exists for the promisor in return.

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